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Applying the Chasm Group Model to Product Management


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Applying the Chasm Group Model to Product Management by
Paul Wiefels at SVPMA Monthly Event November 2002

Published in: Business, Technology
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Applying the Chasm Group Model to Product Management

  1. 1. The Dynamics of TechnologyMarket DevelopmentBuilding Strategy Based onthe Principles Detailed inThe Chasm Companion Silicon Valley Product Management Association November 2002 Copyright ©2002, The Chasm Group LLC. All rights reserved. This presentation is for informational purposes only and may not be reproduced or distributed, in whole or in part, without 1 the prior consent of The Chasm Group LLC.
  2. 2. Agenda It’s Rough Out There How High Tech Markets Develop Product Management and the Life Cycle It’s All About Execution 2
  3. 3. The Mood Of The Last Year Or So“America fell into an economic slump. The crisiscapped a decade of frantic speculationin…securities…stoked by heavy borrowing. Theexuberant boosterism…was suddenly anddramatically quelled.”Actually, the mood of 1857!“America fell into an economic slump. The crisiscapped a decade of frantic speculation in railroadsecurities and land, stoked by heavy borrowing.The exuberant boosterism of the 1850’s was suddenlyand dramatically quelled.” Source: Titan: The Life Of John D. Rockefeller, Sr., by Ron Chernow 3
  4. 4. New Conditions, New Course OUT IN• Sailing with the wind • Sailing into the wind• Capital is easy to get • Capital is hard to get• First mover advantage • First prover advantage• Revenue growth at all costs • Cash-flow positive at all costs• Revolutionary offers • Evolutionary offers• Horizontal markets (breadth) • Vertical markets (depth)• Geographical coverage • Domain expertise• Transaction-oriented selling • Provocation-based selling• “Strategic” partners • Value-chain partners• Catching the next wave • Fixing the leaky pipe• Vendor-centric messaging • Customer-centric messaging• Early markets and tornadoes • Bowling alleys and Main Street 4
  5. 5. Macro Issues Facing TheTechnology Industry 1. Technology Overhang 2. Competition for the Marginal IT Budget 3. Some Assembly Required 4. Whole Product ROI 5. Only Got Time For The Pain 5
  6. 6. Issue #1: Technology CapacityOverhang 6
  7. 7. B illio n s o f D o lla rs 19 0 100 200 300 400 500 600 700 90 19 -I 90 -I 19 V 91 -I 1 9 II 92 -I 19 I 93 1 9 -I 93 -I 19 V 94 -I 1 9 II 95 Source: U.S. Dept. of Commerce, Bureau of Economic Analysis -I 19 I 96 1 9 -I 96 -I Q u a rte r 19 V 97 -I 1 9 II 98 -I 19 I 99 1 9 -I 99 Issue #2: Most Tech Companies -I 20 V 00 -I 2 0 II 01 -I 20 I 02 Compete For The Marginal IT Budget -I7
  8. 8. Issue #3: “Some Assembly Required” IsDriving Customer Revolt IT Developers Departmental IT, Corporate IT, Contractors, VARs Systems Integrators Accenture, KPMG, IBM Applications Siebel, SAP, PSFT, Niche + LEGACY Application BEA, IBM, Tibco, WebMethods Infrastructure Databases Oracle, IBM, Sybase Hardware IBM, Sun, HP, EDS Infrastructure Network Cisco, Nortel, Lucent Infrastructure 8
  9. 9. Issue #4: Customers Have Their Own View of ROI Customer’s Whole Customer’s Product Cost EBIT Benefits - The “I” in ROI - The “R” in ROI VendorSelection Team Business Consultants Monthly Software Bottom-Line License Business Fees Impact Employee Training Time System Integrator Fees Computing Customer’s Equipment Whole Product Cost 9
  10. 10. Issue #5: Pain-Based Messages AreThe Only Ones That Resonate Margin In Margin Out Order Scrapped Late to cancellation Lost work productivity Lost Suboptimal market customer designs Repeated loyalty Lost Delayed Excessive service calls availability responses inventory 10
  11. 11. Key Theme – Back to the Basics Five questions for all companies: 1. How vulnerable are we to fundamental marketplace changes? 2. How important or powerful is the category we are competing in? Is this power rising, falling or static? (You can’t be more powerful than your category.) 3. How important/powerful are we in the category? (Market share) 4. Do we have the right strategy in place to advance or at least weather the current storm? 5. Does our organization understand what it takes to compete? Can we execute on the imperatives suggested (A major problem today.) by the previous questions? 11
  12. 12. High tech Companies Specialize inDiscontinuous Innovations Discontinuous Continuous Electric car Electric/gas hybrid Gasoline powered car TiVO DVD Players VCRs Video Conferencing Conference Calling Voice Mail Discontinuous innovations require an infrastructure to prosper and proliferate. 12
  13. 13. Discontinuity Has Significant (andsometimes Unintended) ConsequencesNew benefits Proven benefitsNew infrastructure Existing infrastructure New Power Old Power Structure Structure Discontinuous innovations foster new power structures . . . if they get adopted. 13
  14. 14. High Tech Company Mission: Creating a High-Tech Value Chain Sales End Products S Channels Users A L $ Systems & E Technical EconomicTechnology Applications Buyers BuyersProduct Providers Service Providers Customers Discontinuous innovations must create new value chains to survive. Discontinuous innovations must create new value chains to survive. Continuous innovations leverage existing value chains. Continuous innovations leverage existing value chains. 14
  15. 15. The Basis for Strategy Development:The Technology Adoption Life Cycle Pragmatists Conservatives Stick with the herd! Move only when necessary! VisionariesMove ahead of the herd! Skeptics No way!Techies Try it! Innovators Early Early Majority Late Majority Laggards Adopters Pragmatists create the dynamics of high-tech market development. Pragmatists create the dynamics of high-tech market development. They cast the deciding vote! They cast the deciding vote! 15
  16. 16. Early Market Visionary LOB or functional executives going ahead of the herd • Driven by competitive advantage • Will help pay for new paradigm • Demand “whatever it takes” commitment • Rely on their own judgment Deal-driven market development prevails • Breakthrough technology gets center stage • Senior service partner leads behind the scenes • Think project not product Examples: • WiFi applications, Web services, HDTV, 64-bit architecture 16
  17. 17. Discovering the Chasm Chasm Early Market Mainstream Market Visionary market saturates • All visionaries have bought • Marketing and sales programs optimized for early market Pragmatists see no reason to start yet • Too early for anything to be “in production” • No herd of references has yet formed Example: peer-to-peer technologies, 2.5/3G (depending on geo) 17
  18. 18. Model Breaks Down at KeyTransition Visionaries vs. Pragmatists• Adventurous • Prudent• Early buy-in attitude • Wait-and-see• Think “big” • Manage expectations• Independent of the “herd” • Part of the “herd”• Spend big • Spend to budget• First use capability • Staying power• Think Pragmatists • Think Visionaries are dangerous are pedestrian Pragmatists dont trust visionaries as references. Pragmatists dont trust visionaries as references. 18
  19. 19. Crossing the ChasmThe “Beachhead” segment The Problem • 80% of many solutions—100% of none • Pragmatists wont buy 80% solutions Conventional solution (leading to failure) • Committing to the most common enhancement requests • Never finishing any one customers wish-list The Correct solution (leading to success) • Focus on a single customer segment and build whole product for that segment • Use experience and product to move to similar segments 19
  20. 20. Key Inflection Points of the LifeCycle Main Street Tornado Early Total Market Assimilation Chasm Bowling Alley 20
  21. 21. Crossing the Chasm Pragmatist departmental managers adopting before the herd • Head-pin segment adopts only if in severe pain • Responsible for a broken mission-critical business process • Must have complete solution to the business process problem • Will try anything that looks like it should work • Will track customer references within own niche carefully Niche market development prevails • Direct sales opens up the niche • Indirect sales takes over the niche once adoption is under way • Healthy price margins and restricted competition are normal • Think whole product not product 21
  22. 22. Bowling Alley Other niche segment managers adopting before the herd • Major productivity improvement in a unique business process • Must have complete whole products • Rely on customer references Niche market development continues to prevail • Leverage customer references from one segment to next • Leverage solution partners from one segment to the next • Invest in extending the whole product not the product Examples: xxM software, digital cameras, consumer broadband, Linux, business analytic s/w, CAD tools 22
  23. 23. Tornado Pragmatist infrastructure managers adopting with the herd • Transition to the new infrastructure • Must have standards • Rely on market share Mass marketing / market development prevails • Streamlined one-size-fits-all whole product • Low-touch, high-volume distribution • Margin-based competitions • Think product Examples: eCommerce infrastructure (previously) 23
  24. 24. Main Street Installed base driving the after-market • Want better values, no disruption • Two paths: commodity vs. differentiation • Installed vendor has major competitive advantage • Customer relies on trial, not references Mass customization prevails • Standard core for price-sensitive sales • Customizable surface for differentiated offers • High-touch, high-volume distribution direct to end users • Think end-user experience not product Examples: Mobile phones, printers, ERP, x86 microprocessors, PC desktop applications 24
  25. 25. Evolution of the Whole Product Mostly Plug and play Fully Mass custom some integrated customized work customization Different whole product priorities Different whole product priorities at different stages of the life cycle. at different stages of the life cycle. 25
  26. 26. Summary: Four Strategic OptionsTarget Visionary LOB or Pragmatist Pragmatist End-usersCustomer functional departmental technical buyer executive managerCompelling Dramatic Fix a problem Adopt new Better values withReason to Buy competitive business process infrastructure no risk advantageWhole Product Application focus, Application focus, Product focus, Product focus, differentiated standardized standardized differentiatedPartners & BPR and SI Recruited for Rationalize to MinimumAllies service providers specific whole reduce friction required, ideally product noneDistribution Direct sales Direct sales Drive to higher- Low-cost, high- transitioning to volume, lower- touch VARs touchPricing Value-based, gain Value-based, pain Competition- Competition- motivated motivated based, pain based, gain motivated motivatedCompetition Category vs. Market vs. market Company vs. Product vs. category company productPositioning Technology-based Niche market Market-share- Better experience leadership leadership based leadership for end usersNext Target Another visionary Adjacent niche New platforms, Next micro-niche in a different market channels, industry geographies 26
  27. 27. Early Market Whole Product Extended Product Consulting Hardware • Enthusiasts value the core product. Service & support Software Core • Pragmatists value the whole Product Pre-sales Peripherals product. services Legacy interfaces Connectivity • Visionaries value the extended product.Whole Product To win an early-market deal To win an early-market deal promise visionaries the extended product, promise visionaries the extended product, even though you have not finished the core product. even though you have not finished the core product. 27
  28. 28. Bowling Alley Whole Product What your in-categoryWhere you can show competitors have inyou understand common with youcustomer’s businessproblem and itssolution Consulting Hardware Post-sales service Software & support The Product Pre-sales Peripherals services Legacy Where you can interfaces Connectivity show you have committed to solve problem and have a pre-engineered solution You know you have aagreat whole product You know you have great whole product when your competitors concede you your niche.. when your competitors concede you your niche 28
  29. 29. Whole Product Defined • For a given target customer, • With a compelling reason to buy, • The whole product is the complete set of products and services needed • To fulfill that reason to buy. MovingThe Product Being Marketed Other Parts of the Whole Product Pads, mats, ropes FOR RENT Furniture dolly Boxes, tape, labels Insurance Helpers 29
  30. 30. Tornado Whole Product 5 Commoditization to drive down prices. 4 Simplification to expand distribution. 3 Standardization to create de jure standards. 2 Institutionalization to create de facto standards.1 Generalization to create mass market (“the killer app”) Goal is to reduce complexity, increase proliferation. Goal is to reduce complexity, increase proliferation. 30
  31. 31. Main Street Whole Product +1Option 1: NewOffers to InstalledBase Option 2: Offers made deeper into the niche Option 3: Offers that spawn a new marketExamples: • Second paper tray for laser printers for lawyers • Bundling an encyclopedia with a Home Office software suite • General ledger templates for specific industries 31
  32. 32. + 1 Programs Can Vary Level 1 Level 2 Level 3Simple Promotions Complex Promotions Mass Customization Do not open Do not Do not touch the box touch the the core product product Line Extensions New Platforms New Technology NoDo not touch the Do not touch the constraints: internal external Create a new (product) (interface) paradigm architecture architecture Level 4 Level 5 Level 6 32
  33. 33. Strategy Frameworks +1 Marketing Mass Marketing Deal Product to Service Driven Marketing Niche Marketing 33
  34. 34. Product Management PrioritiesCustomer Satisfaction Price/Performance “Delighters” Enablers Initial Release Early Market Bowling Alley Tornado Main Street Time 34
  35. 35. About The Chasm GroupCompetitive advantage is not built by technology. Its built by people.The Chasm Group LLC is a consulting practice focused on helping high technologycompanies achieve market leadership positions for their core products and services.Making strategy decisions in high technology markets is a high-stakes game. If strategiesare to be implemented successfully, they must be understood and committed to by manydifferent organizations. Today, the need for rapid and decisive responses to a shifting andambiguous marketplace—and the need to gain team-wide commitment to theseresponses on a sustainable basis—requires new strategy creation, organizationaldevelopment and change management alternatives.The Chasm Group can help you build a complete market development strategy - fromdefinition to execution - and all the steps in between.The Chasm Group LLC411 Borel Avenue, Suite 550San Mateo, CA 94402-3520tel 650-312-1940fax 35